Q&A Forum

Cost of Processing a Credit Memo

We process credit memo's for returns and shortages (we have quite a few of them) and I estimate it takes 20 minutes to process just one (myself 15 and cash app 5). My question is can anyone estimate how much that one credit memo costs to process as a company? Is there a magic formula for figuring cost of processing a credit memo. I work for a large company and thinking would be more cost effective to post to a GL such as shortages instead of processing a credit memo. Also thinking if it costs $50 - $75 to process one credit memo, why not verify authenticy of customer deduction and post directly to GL.

Answers

You can probably solve this using a simple cost/benefit analysis. You've already partly answered your question because you've estimated how many you perform over a period, the team members performing them, the distribution of work among them, and the rate of pay those team members make. Apply your standard overhead amount used in your annual budget (this can vary widely so you'd rather not guess blindly) and a small buffer (3-5%) to cover software, supplies and other misc costs. This should give you a solid guestimate of how much one credit memo costs for you to process.

Then do the same thing with the journal entries you're proposing. How long would it take to create one, who would do it, etc...

Compare the two answers and you'll have your justification to either proceed with the recommendation or not. Again, this is a simple approach so you can fairly quickly make a decision on whether to proceed with a more robust analysis - if you even think that would be necessary.

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